Insurance Agents & Brokers Duties: Insurance Broker Standard of Care
The Insurance Broker standard of care owed to a client/customer varies from state to state (1). There is a technical distinction in most states between a broker and an agent. For the purposes of discussion let’s assume the Insurance Broker is the person who represents the insured consumer/customer and is not tied to a single carrier. Further, assume the insurance agent has some type of contractual arrangement to represent the interests of the specific insurance carrier. To the extent, the insurance person has business interaction with both the insured and the insurer; he may occupy a duel capacity with separate rules applying to the relevant status and conduct.
The following discussion relates to the insurance broker standard of care, i.e. an insurance person occupying the insurance broker status. Additional discussions will follow relating to the standard of care and possible liabilities of the person occupying the position of an Agent to his carrier and the duty, if any, an agent may owe to the insured/customer.
With respect to the insurance broker standard of care there is a basic rule of reasonable care which is then modified in some jurisdictions using Special Circumstances. It is then modified further in certain states by imposing an expanded duty of Professional responsibility.
Insurance Broker Standard of Care
The Basic Rule
1. There are states such as Montana, Rhode Island and Utah where the broker is only required to obtain the coverage requested with reasonable care, skill and diligence and to notify the insured/customer if he is unable to do so. (In its most basic form this broker is like a waiter at the diner, he is recording what you want and placing the order. Unless you ask him/her, you will not find out if the steak is any good.) There is no duty to advise, but broker has exposure for improperly placing the order and providing false or misleading information if asked.
Special Circumstances Modification
2. There are states, such as California and many others, that rely on a “Special Circumstances Rule” that starts off like a waiter, and basically provides that an insurance broker has a duty to use reasonable care, diligence and judgment in procuring the requested insurance. There is not a duty to advise the insured on specific insurance matters, or point out advantages or additional coverage, or obtain additional facts applicable to coverage, EXCEPT that Special Circumstances create exceptions to the rule: “(1) if the broker represents the nature, extent, or scope of the coverage being offered or provided; (2) if the client requests or inquires about a specific type of coverage, or (3) if the broker assumes an additional duty by either express agreement or by “holding himself out” as having expertise in a given field of insurance.” (e.g. see Jones v. Grewe (1971) 189 CA3d 950; Fitzpatrick v. Hayes (1997) 57 CA4th 916, 927; Pacific Rim Mechanical Contractors Inc. v. AON Risk Insurance Services West, Inc. (2012) 203 CA4th 1278; Mark Taner Construction, Inc. v. HUB International Insurance Services, Inc. (2014) 224 CA4th 574.
As a practical matter these special circumstances are the source of much litigation which is a topic to be covered separately on this website under “articles”. One must ask how often does an insured/client call his broker and give the specific request for coverage without asking some questions and seeking come clarification. At least in those states that follow the “Special Circumstances” rule, the actions taken and the statements and promises made by the broker will be critical in determining his liability exposure. If the special circumstances create a duty, the Broker must act with reasonable care, diligence and judgment with respect to his efforts to procure the insurance and advise the insured.
Special Circumstances on Steroids
3. There is a term “Professional Standard” in states such as Arizona, Alabama and Idaho; for example, the Idaho Supreme Court said that insurance agents have a general duty to use reasonable skill care and diligence to procure insurance requested by a client and should be held liable for negligence just like other professionals such as doctors, attorneys, architects and engineers. See: McAlvain v. General Ins. Co. 554 P2d 955, 97 Idaho 777 (1976). This would imply that there is a duty to advise without the necessity of finding Special Circumstances. However, it should be noted that the McAlvain case involved an agent appointed by General Insurance who failed to increase inventory coverage limits after a specific request by the insured. The court found a tort duty owing to the insured by the agent. If it were not for the reference to duties owed by doctors, attorneys, etc. (Dicta?)., this case could easily fall under the California Special Circumstance rule where the agent (or broker) agrees to do something and negligently fails to do it without the necessity of invoking a Professional Liability standard. However, the court appeared to want to give some advance guidance to eliminate future confusion with respect to their view of the scope of the duty.
(1) See Myles P. Hassett, Esq. Do insurance Agents have a Duty to Advise